Australia’s electricity sector faces AUD22bn bill

Australia’s power sector is heading for an AUD22bn (US$19bn) bill as it seeks to refinance debt over the next two years as well as uncertainty about carbon prices hurting investment.

Around 80 per cent of the country’s electricity is generated by coal-fired plants, which are facing rising costs for their operators as some form of carbon pricing is in the offing. However, the timing and final format of this expected legislation remain unclear, deterring investors from entering or staying active in the sector.

The government’s carbon pollution reduction scheme (CPRS) legislation looks set to be rejected again in a hostile Senate over the next week, continuing the current climate of uncertainty. Under the CPRS, a one-year fixed carbon price of AUD10/t will start from mid-2011. Full auctioning and trading of permits would commence in 2012 and by 2012-13 the government predicts a carbon price of AUD26/t. The scheme would cover 1000 of the country’s biggest polluters, covering around 75 per cent of national emissions. “It may be once the details of the CPRS become known, providers of capital will become more comfortable,” said Steve Durose, head of Fitch’s Asia-Pacific Energy & Utilities team, told Reuters.

One of Australia’s most polluting power station, the 1675MW brown-coal Hazelwood plant in Victoria, owned by British company International Power, refinanced AUD742m of debt last week. “It may be that the banks were too scared to do anything else because the alternative for the banks would have been that Hazelwood would have been unlikely to find that capital from somewhere outside its own banking group unless International Power put in more equity,” said Mr Durose.